India puts conditions for bilateral investment treaty with US

NEW DELHI: India has put forth two conditions for a bilateral investment treaty with the United States, insisting that its judiciary has the last word on commercial disputes and that its sovereign guarantees are not invoked in such cases.

The conditions reflect the concerns of the government even as it seeks to build on the overarching principles of bilateral investment agreements, a senior official told ET, adding that the move is part of the Centre’s overdrive to draw foreign investments in a bid to restore growth and correct the fragile current account deficit.

Finance minister P Chidambaram and commerce minister Anand Sharma discussed the matter on their last visit to the US a few days ago as India stepped up engagement with the Barack Obama administration to give shape to a bilateral investment treaty (BIT) on the lines of the Bilateral Investment Promotion and Protection Agreement (BIPA).

The US authorities too are inclined to forge an investment treaty, given the US’ interests in defence and financial sectors, a foreign ministry official familiar with the matter said.

The prime minister is scheduled to visit the US in September and the government is keen to work on the modalities of the treaty over the next few weeks. Technical teams that will discuss the nuts and bolts of the treaty will be in talks to give some shape to the treaty, another official said.

Sharma indicated a positive move in the bilateral investment talks when he briefed the media in Washington on July 13. “We have said that 'yes, we are ready for it'. We are in favour,” he told the media after meetings with the US Trade Representative Michael Froman and other US officials.

Froman had raised concerns of the US industry regarding India’s policies on preference for domestic manufacturing (PMA; solar domestic content requirements), compulsory licensing decision, IPR issues and taxation issues (GAAR; transfer pricing) in his meeting with Sharma.

The US industry has been vocal about its complaints on these issues and has said that these policies have led to deterioration of the investment climate in India, making it difficult for US companies to do business in India.

While emphasising on an early conclusion of the BIT, Sharma said India was in the process of revising its model BIT agreement to eliminate the prospects of disputes between the investors and the government in future. India will have a revised model in place in a few months, after which the two sides could resume negotiations. The government’s recent decision to raise the caps on foreign direct investment in several sectors including defence and insurance is expected to give the required push and comfort for talks on the treaty to move ahead, the official said. The Cabinet last week approved a higher cap through automatic route for the insurance sector to 49% from 26%.